Home https://server7.kproxy.com/servlet/redirect.srv/sruj/smyrwpoii/p2/ Business https://server7.kproxy.com/servlet/redirect.srv/sruj/smyrwpoii/p2/ Dollars under pressure as investors become optimistic about growth

Dollars under pressure as investors become optimistic about growth

The dollar is heading for its longest stretch with no gains against a basket of peers for nine months after investors became optimistic about the global growth outlook in April and pushed the exchange rate lower for four consecutive weeks.

The declines followed a robust performance in March as the U.S. strong economic recovery sparked expectations that rising inflation could push the Federal Reserve to reduce its supportive policies, raise bond yields and pull the dollar higher against most other major currencies.

But in a sign that investors believe the global economic recovery may not be far behind, the dollar index plunged 2.7 percent in one month to trade at $ 90.98, while currencies with strong commodity price bands jumped . The euro rose 3 percent to trade at $ 1

.20, and the Brazilian real proved to be the best currency of the month.

Despite the eurozone crashing in a recession in the first quarter, analysts expect that activity in the bloc will gradually increase as vaccination programs come together and economies reopen.

“The return to a ‘global’ rather than just ‘US’ reflective trade is the main reason we saw the dollar index lose ground in April,” said Kamakshya Trivedi, a strategist at Goldman Sachs.

Line chart of US dollar index showing Greenback declines as global outlook brightens

“In the coming months, we should start to see a decoupling of European Covid restrictions, and we expect further solid gains in oil and copper prices – which should keep the dollar on its hind legs,” he added.

On Wednesday, US Federal Reserve Chairman Jay Powell tried to quell fears of a hasty closure of the Fed’s asset procurement program, stressing that the political stance on the deaf had come to stay.

“The Fed has exerted itself. We doubt this is sustainable, but we have to take it for granted for now, ”Bank of America analysts said in a note.

Output data for the first quarter showed that the difference between the growth rate in the US and Europe remains large, with the euro area increasing its contraction by 0.6 per cent, while the US boiled 1.6 per cent of the expansion in its gross domestic product.

Silvia Dall’Angelo, senior economist at Federated Hermes, said the US economy was likely to perform better in the next two quarters, but the eurozone “should start catching up in the third quarter”, which would make the dollar less attractive once it did. .

However, some analysts do not remain convinced. Win Thin, global head of currency strategy at Brown Brothers Harriman, said it was unlikely the eurozone would match the expansion of the US economy this year, leading the Fed to reduce its asset purchases within Europe.

“One factor cited for the recent strength of the euro is rising expectations that economic disparities will narrow in the second and second quarters. However, we just do not see it, “he said. “The ECB will have to maintain its accelerated pace of asset purchases much longer than expected.”

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